Inflation surprises the Federal Reserve, which intends to stay the inflationary course
The minutes of the Federal Reserve board’s June meeting have been released and what they show is a collection of policy makers surprised to see prices rising faster and across more of the market than anticipated.
According to the Wall Street Journal:
Fed officials expected a temporary burst in inflation as the economy struggles to supply enough goods and services to keep up with demand this year. But the spurt has been stronger and broader based than officials expected. On a 12-month basis, the Fed’s preferred inflation gauge, after excluding volatile food and energy categories, rose 3.1% in April and 3.4% in May, a 29-year high.
Investors and Fed officials are grappling not only with an unexpected blast of price pressures but also with implementing a new policy framework, unveiled in August 2020, designed to seek periods of inflation moderately above 2% after periods below that level. Officials have been vague around defining the precise parameters for what would be an acceptable period or magnitude of above-target inflation.
Playing footsie with inflation is dangerous. In the meantime, the Fed continues to distort markets with its voracious bond buying program that keeps interest rates artificially low – punishing savers, rewarding debtors (including the federal government), and allowing zombie companies to stalk the earth.